It can be cumbersome to obtain a car loan for buying a car but doing so after bankruptcy may feel like next to impossible. When one wants to acquire a major asset like a vehicle, one often requires credit to afford it.

While you may feel that nobody would be willing to lend you a loan, lenders are often amiable to working with borrowers who are recovering from financial woes.

Here are the ways in which you can ensure that bankruptcy would not get in the way of your endeavor:

Check your credit report and credit score

Lenders rely on credit reports and scores of people to assess their creditworthiness before deciding upon an application. Credit reports are an indicator of your ability to manage credit. Your credit report and credit score would not be in the best shape after bankruptcy and might even be unpleasant to look at.

But it’s essential to review your credit report and score before applying for a car loan because mistakes are not uncommon. You should pay attention to what the report says about your previous car loans because they are more heavily weighted in the credit scoring models employed by car loan lenders.

Positive and regular car loan payments during and after bankruptcy that have been reflected in the report can help build a positive credit report. You can also try to improve your credit score by applying for a secured credit card, making regular credit card bill payments, and loan EMI payments on time.

This would help in creating a positive payment history, which, according to FICO, constitutes around 35% of your credit score. Doing the aforementioned and making sure that the information in your report is accurate can improve your chances of obtaining a car loan after bankruptcy.

Arrange a Down Payment

A car loan often requires you to make down-payment using a bank transfer or any other medium. Besides, if you get together a substantial amount of money to make a high down payment on the car you’re hoping to buy, you can increase the chances of obtaining a car loan. This is because the larger your down payment amount is, the less risk your lender is taking. So, it would be advisable to save over a considerable period to ensure that you have a substantial amount of money available to pay as a down-payment. You should have around at least 20% of the car cost as your down payment to be on the safer side.

Weigh your options carefully

You should collect all relevant information, like your credit report, financial statement, and spend some time getting preapproved for a car loan. A preapproval refers to a conditional offer that includes an estimated loan amount, loan terms, and interest rate. It is advisable to limit your application to a short period, preferably a day or two, to minimize the impact that multiple inquiries would have on your credit scores.

Your credit score will decrease temporarily due to a hard credit check employed by lenders to check your credit score. If you had gone through bankruptcy recently and haven’t started building your credit, you might have to choose a higher-rate loan. A way to avoid such a situation is to get a co-signer with a good credit history. It would increase your odds of being approved for a loan, besides allowing you to get better interest rates.

Beware of Predatory Loans

Loan available at a dealer should be your absolute last resort. Such loans usually have a very high-interest rate and are quoted not per year but per month. Other loans can be just as predatory. Ensure that you go through the terms of your loan contract carefully before signing it as there might be some hidden costs in the loan agreement. Besides, you should make sure that you can afford the payments because if you default on this loan, bankruptcy may not be an option due to your recent filing.

Ensure timely payments

If you take on credit building loans to build your credit, ensure that you make your payments on time to ensure that you can create a positive credit history. You should also make timely payments for your car loan as it would help you improve your credit. This way, you can regain a good credit score over time.

One of the best ways of doing so is to be consistent in paying off your debts fully and in a timely manner. If you do so diligently, your credit score will improve, allowing you to get better interest rates in the future.


You should keep checking your credit scores regularly after your bankruptcy. After you have paid your loan, whether a car loan or any other form of credit, your scores would have improved significantly. If this happens, you may find yourselves in a position to refinance your car loan at a lower interest rate. However, it’s important to never proceed upon this assumption as refinancing is contingent upon several factors. If you take out an expensive loan hoping to refinance it later but fail to do so, it would become very difficult for you to repay your loan.

Go for a used car

This option may not seem very appealing but the fact is that the price of a second-hand car is lower than a new car. Also if you have not been very successful in rebuilding your credit, this might be the only option that you have. With the advent of used car dealerships, it has become very easy to find used cars in very good condition.

This strategy also entails higher insurance costs and lower interest rates since you would be buying a used car. But this can allow you to purchase a high-end second-hand car for the same price as a low-end car. However, you should be careful while buying from private sellers. Make sure that there is no unpaid debt attached to the care and that the concerned vehicle is not stolen.

Author Bio

Sapna Singhal is a Senior Content Writer at My Banking Information which is a

Financial Content Blog. It aims to deliver financial knowledge to non-financial

people in a simple and easy to understand way. Check out my website

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